FHA Interest Rates are often lower than Conventional Interest Rates, and we often have borrowers ask us which type of financing is better.
FHA’s benefits over Conventional Financing:
(1) Lower Rates Sometimes;
(2) More Flexible Credit Standards;
(3) FAR Lower Down Payment Requirements – saves liquidity;
(4) FHA Loans are Assumable – a great feature if and when rates go up.
(1) Up Front MIP of 1%, no matter what the LTV is; Conventional Financing has no “Up Front MI”;
(2) Monthly MI of 0.90% per year no matter what the LTV is*; Conventional Financing only requires MI if the LTV is above 80%;
(3) MI must stay in place for 5 years no matter how low the LTV is – PMI with Conventional Financing can be eliminated as soon as the LTV drops below 80% in most cases;
(4) Slightly tighter appraisal standards from a condition perspective, but FHA can be “As Is”.
Our rule of thumb: If a buyer has ample liquidity and can put down 15% of the purchase price or more, we always recommend Conventional Financing to avoid MI or to make it easier to get out of MI.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167